Sunday, June 13, 2021

Musings on Stock Investment - Part 1: Abhimanyu and the Chakravyuh

When I was in Fidelity, a Gujarati stock trader who was a big guy in the Finance Industry - I forget his name -  was invited by the company to give a talk.  I will never forget one analogy that he drew,


We all know the story of Abhimanyu and the Chakravyuh. Abhinmanyu was taught the secret of entering the Chakravyuh when he was in his mother's womb, by his uncle Krishna. At a crucial juncture in the War, Drona arranged his army in this formation. The only three people who knew how to enter this formation were Arjuna, Krishna, and Abhimanyu. Now, Arjuna and Krishna also know how to extricate themselves once they entered it, Abhimanyu did not. Krishna and Arjuna, as it happened, were away in another section of the battlefield and would be unable to help.


So, the uncles ask Abhimanyu, a mere kid in age though not in prowess, to enter the formation. Abhimanyu demurs, saying he does not know how to get out once he is in. All the uncles assure him that they will be just behind him, and help him to get out.


We know how the rest of the story pans out. The uncles who are close behind, are stopped by Jayadratha, and Abhimanyu perishes fighting a glorious battle.


The stock market is also like that. Everyone will tell you when to buy, but no one will alert you when it is time to sell. Once you enter the Chakravyuh, you are left to fend for yourself!


While we recommend stocks for buying, we also intend to keep a close eye and indicate when it is time to sell. That is a process that is easier said than done, for there is no answer to the question 'when is the right time to sell?'.


There are many theories for that. At one extreme is the opportunistic approach of the person who has a typical trader mentality. The moment the price rises a little bit, he wants to sell. 10 percent up, sell part of holding! Another 10 percent up, sell the whole thing! What this person may be missing out on, is on the phenomenal rise later on, the initial twenty percent may just be an appetiser.


Then there is the Warren Buffett school which says, even if the stock market is shut for the next five years, and there are no daily quotes, it does not matter, since I do not intend to sell, for say 10 years, or sell never.  Now Buffett and his partner Munger are both in their nineties, Bhishma Pitamahas, Maharathis who can fight better than people half their age. They have spent the last seventy years, only studying and thinking and living and breathing Stocks. And just like Bhishma when he was a teenager learnt from Vashishta and Parashurama, Buffett had the advantage of directly learning from Benjamin Graham. The point I am trying to make is, hearing what Buffett says is one thing – and there are several books on Buffett Sayings – but actually implementing it is another thing altogether.


There is also the fact that the market dynamics keep changing, and what was a good philosophy for the last decade may not be applicable any more in the new world.


For example, most stocks today don't do well at all, and are at best middling in their returns, but a few, a very very rare few, shoot up, up, up and away.   Just see the tech behemoths in the US, with market-caps in excess of a trillion dollars, and check out their prices, say, seven or ten years back. We are taking of returns in excess of 1000 times!


Take this story of Goldman Sachs who bought a 30% stake in Alibaba in 1999 for 3 million dollars. They were offered 50% stake for 5 million but refused, and invested 3 million instead for the 30%. They sold in 2004 for 22 million.  How lovely, they would have thought, and smiled to themselves.  If they had held on, their stake would be worth 200 billion dollars, that is 2 lakh million dollars today. From 3 to 2 lakh in 22 years – that is about 65,000 times, or 65 lakh percent.  Winner takes all!


When we look at stocks, and try to decide on when to sell, the following considerations are all relevant:


1.     Try to identify companies with potential for extreme growth. Now, being value investors at heart, we are always tempted to buy it at the right "value" as well. Whether the 'value' parameters are relevant or not we do not know, but it is difficult to let go of them. Graham was a total 'value' kind of investor, following what is called the cigar-butt approach to investing, but Buffett went beyond that and tried to identify companies that had potential for strong growth, i.e. companies with 'moats'.  Hence the Coca Cola type of scrip, and also insurance companies which threw up cash, and railroads when they were at a low – all this propelled Berkshire Hathway to where it is today. But even Buffett missed out on the tech boom – he has made amends in the recent past, and it may be a bit late, but it shows that the two Pitamahas are still not too old to learn.

2.     Now, we do not know which companies of the ones we have shortlisted for their 'extreme growth potential' will do well. A couple of them may. The rest may die a gory death. But, let us look at it this way. The downside is capped, at 100 percent of our investment. The upside is almost infinite, like the story of Alibaba illustrated. So, if we invest in ten such companies and even if one of them does spectacularly well, we will be fine. For such stocks, never sell, hold for the long term.

3.     Buy companies with a "moat", which is Buffett's preferred strategy, and hold them for the Long Term. These will always be expensive, at any point in time, but like Buffett says, it is better to buy a great company at a good price, than a (merely) good company cheap. For such stocks, never sell, hold for the long term.

4.     Indulge in value buying, if you feel that the stock is unnecessarily beaten down, and will definitely correct to its "average" levels. For such stocks, sell when the "valuation" goes much above the average. Do not hasten to sell, for you may never know if the market is going to take it up still higher – perhaps, a trailing stop-loss is the answer in such a situation, like it happened with us in the case of Ion Exchange. We had recommended it at 700 levels in September 2020, but it rose to 1600 levels by end May, and then shot up in one day by twenty more percent hitting the circuit, and is currently at 2100 levels. We have put that on a trailing stop loss.

5.     The mistakes: Huhtamaki PPL which we kept recommending, never went up, and finally dropped more than ten percent below our average purchase price. We recommended booking a loss.

6.     For cyclical stocks, rather than 'analyse' them based on the usual parameters, it is probably better to have a floor price below which you will buy and a ceiling price above which you will sell.



These are some of the considerations that I keep thinking about when we buy stocks, and think about when is the right time to sell. I am not comfortable with the Coffee Can philosophy of buy, hold and forget for ten years; but I am not comfortable with the 'quick turnaround' philosophy either.  And, just because I have listed some considerations for buying and selling, does not mean that I will be able to consistently follow them. The stock market tests all your theories, all your models, and all your resolutions, constantly shakes your self-belief and makes you doubt yourself. Having said that, I do have a process, which I keep honing all the time, and I shall hopefully be able to stick to it and make us some meaningful money.


Friday, June 11, 2021

A personal finance manifesto

What is the objective of investing in shares? Or, for that matter, any asset?

The objective, IMHO, is to reach a place where it is no longer necessary to work for a  living. Let us define that a bit further. 

The best definition of wealth is: Wealth is the number of days (or years) you can live on your current Assets, if you stop working.

In case you can stop working right now and continue to live the rest of your life in comfort from the income that your assets generate, that is true wealth.

For someone, that number may be just 2 crores, for someone it may be 20.

"Income" in this case is not the accounting definition of income, it includes income, capital appreciation, and dividends of all kinds that your assets generate.

This beats other definitions of wealth, since it excludes assets like your house, on which you are not generating any income. 

As someone who has subscribed to my stock newsletter, I am sure that is your objective too.  To make enough on stocks to grow your capital base, so that you can afford to stop working. Or, to put it differently, you need FU money; enough money so that you can tell your boss to go take a walk if he becomes too unreasonable.

So, how much is that?

Let us assume your monthly expenses are 1 lakh. You need to make enough from your assets to cover this one lakh and future inflation. Your 1 lakh of spend today, at 5 percent inflation, will become 2 lakhs, to maintain the same lifestyle, in 14 years. And 4 lakhs in 28 years. 

Let us call your monthly expense today as X. As a broad thumb-rule you need 400 times of X, excluding your primary house (the house in which you stay, since that does not generate any income, and nor is capital appreciation useful if you cannot sell it), in order to quit the rat race.  This does not include any expenses for children's higher education - if you dream of sending your children to Harvard for their undergrad studies, please budget for that separately. If your children, on the other hand, are not so smart as to get admission to Harvard or to aspire for it, thank your lucky stars.

That calculation obviously assumes a particular rate of inflation and a particular rate of return on your investments. If you assume an inflation of 5 percent per annum (let us keep that constant): 

If you assume a "return (net of tax)" on your investments of 6% (quite conservative), then your money will last for 42 years.

If you assume a return of 7% on your investments (net of tax), your money will last for 59 years. If you assume 8%, however, your money will last for ever and the corpus will keep growing! 

The first sheet in the attached spreadsheet is a "retirement calculator" - the whole spreadsheet, which has other things relating to personal finance apart from this calculator, is the outcome of the years of personal finance sessions which I used to conduct along with my good friend and erstwhile colleague at Fidelity, Srivatsa Rangaswamy. Play around with the numbers in the Retirement Calculator, and you will realise what a one percent differential in interest rates can do in the long term.

Personally, I would be ecstatic if I can maintain a 12% per annum return consistently over several years. Now, how to go about getting that kind of return?

First, minimise the tax outgo. Invest in debt mutual funds (growth option) rather then Bank FD's; invest in Real Estate; invest in shares, either directly or through Mutual Funds.

Second, invest for generating higher return.  What I am trying to do in my suggestions for stock investments is to generate at least 12 percent per annum, and targeting for 15 percent per annum.  That is the statement of intent. Whether it works out that way, only time will tell. So far, we have been doing well. I started this whole process somewhere around Diwali of 2020, and I started tracking it meticulously only from Feb 1st, 2021. From Feb 2021 till date, we have made nine recommendations and the performance has been as follows:

Which is not too bad. It is too early to say anything, we have to give it at least a couple of years, and a couple of market cycles, including downswings, before we can conclude for certain whether we are doing well.  But the start has been promising and gives me enough confidence that at least the process seems to have got something right.

Some of you have been on this list for a few months, and some of you are more recent subscribers. Hopefully, you have been following my recommendations so far, or investing in a few of those; I do hope you find it useful.

Just to summarise the purpose of this investment newsletter: 

We are aiming for a 15 percent per annum return, or at the least 12 percent per annum return, through investing judiciously in select stocks. 

I shall be sending out a recommendation once every fortnight. Any shares that have been recommended earlier but not figuring in the list are on "HOLD" , not "SELL".  I shall be alerting you when I think it is time to sell any particular scrip.

A note of caution and a disclaimer: Stock investment is an inherently risky game; do not put all your eggs in this basket. Also, spread out your investments, do not invest very big lump-sums at one go. 

Do write back to me at any time giving your thoughts, or feedback or suggestions. 

The spreadsheet is attached.

Happy Investing!

Dinesh Gopalan
mob: 9845257313; blog:

Thursday, May 27, 2021

Exposure builds immunity

Immunology 101: exposure builds immunity. 

Continuous exposure in small doses is required for the body to develop resistance to New viruses 

When the baby is born, it picks up "germs" from the  mother's vaginal canal , a huge load of them which gives it a great start in life.  C Section babies are less immune and they start with a handicap in life.

Children need to play in the mud, eat some mud, and get dirty, to develop their immunity 

Everyone needs to drink the local water of the place they visit ( and not drmineralised, lifeless, germless  "mineral" water) in order to pick up the local germs for the body to be familiar with.

We, all of us, life long, need to be always "exposed" to all that is out there so that our bodies are constantly facing these gems, and developing their responses to it, storing all of that in the cells' memories.

We are doing the opposite. We are isolating, masking, and rubbing our hands with alcohol. We are running away from germs .

I am not talking of corona. In the name of escaping from the corona virus, we are doing all  that.

The prognosis is not good.

Wanting it All

The ironies of life are too immense,
To be a mere coincidence,
We humans have a natural talent,
For muddling up, not knowing our own minds!

To be or not to be is the question,
We would rather be, and not be, at once,
We want to have the cake and eat it too,
We lose both us and the cake in trying!

The journey is a road with many forks,
Each one branching out into many more,
We always regret and we look back,
Wishing we had taken the other one!

Tuesday, May 25, 2021

Into The Magic Shop by James R Doty : Book Review


Just read this book, Into the Magic Shop, by James R Doty, MD. It bills itself as a "Neurosurgeon's quest to discover the mysteries of the brain and the secrets of the heart."


A wonderful read – it has been a long time since I finished a book in a single sitting. It is much more than what it claims to be. It is a heart-warming story of success against all odds, about life's vicissitudes and about passion, to one's profession, and towards whatever one wants to manifest in one's life. But it also more than that.


The story is quite simple. Poor buy fights against all odds to reach success. Becomes a neurosurgeon. Becomes famous. Loses all his money in the crash. Then he picks up the pieces and builds his life again. Ends up as Director of CCARE – Center for Compassion and Altruism Research and Education at Stanford, for which the Dalai Lama is the Chief Patron. So far, nothing very different from the usual heroic-achiever stories.


But it is different in the way he achieves his success. When he is a boy, he finds a teacher who teaches him the secrets of manifesting whatever he wants in his life, by desiring it deeply. It is the same trope of "the universe conspiring to give you what you want, if only you believe in it strongly enough", except that the path to achieving it, is set out in exceedingly simple terms.


His teacher starts first by teaching him how to relax. The technique is exactly the same as that used for Savasana in Hatha Yoga. Swamit Satyananda Saraswathi of the Bihar School of Yoga, while talking about meditation, spoke about how important it is to relax first. Most people fail to see this connection.


From relaxation, the teacher leads him on to techniques of concentration, which are very beautifully laid out – the book touches on the three most effective techniques for concentration (which leads to meditation)  - focusing on one's breath, staring at the flame of a candle, and chanting a mantra. It is all done in a natural way, like when you would explain to a twelve year old, for that is how old the author is when he is learning all this.


And then, it talks of visualization, and manifesting whatever you want in your life. The Dhammapada, in its first two verses, says "1. Our life is shaped by our mind; we become what we think. Suffering follows an evil thought as the wheels of a cart follow the oxen that draw it. 2. Our life is shaped by our mind; we become what we think. Joy follows a pure thought like a shadow that never leaves."  (The Dhammapada,  Eknath Eswaran's translation)


The teacher first teaches him to "open his heart" which is the seat of wisdom, and then the techniques to bring into his life all that he wants manifested.  The techniques are described in a very simple way, but it is one of the best manuals on meditation I have read, explained in a few, simple, concrete steps, devoid of all jargon.


The book is written in a very direct, simple style, and it manages to do what all good books do – put you in the shoes of the protagonist and make you look at life through his lens, and share in his journey.  All in all, a good read, short, sweet, and insightful.

Tuesday, May 11, 2021


Offer your services to the world,
Expecting not any rewards,
Do not fall into inaction,
For therein lies the wrong path!

Immerse yourself in what you do,
You are no different from the Work,
In immersion lies Mastery, 
It flows on its own, as it were!

Dedicate your work, all, to Him,
There is peace in the surrender,
Once you drop all expectations,
The world places itself at your feet!

Forever strive to distinguish,
The Transient from the Real,
The world attracts with lots of tinsel,
The Truth is hidden, plainly in sight!

*(The Bhagavad Gita talks about: 
Karma Yoga, Raja Yoga, Bhakti Yoga and Jnana Yoga )

Monday, May 10, 2021

The covid panic continues

People are rushing helter skelter for vaccines. There is a shortage and many hospitals in Bangalore have suspended the vaccine program due to lack of stocks. Online slots for vaccines where available  are being cornered by techies since they are very good at the game of fastest finger first.

People are desperate. On meeting ( at a six feet distance) they ask "vaccine done?" and not "how are you?".  A burst of envy greets the other person if the reply is positive.

The fear is palpable. Everyone is trying to "be safe", and "being careful".
To the best of my knowledge that involves trying to run away or hide from something which will anyway get you.  Many people who have been "safe" have also got the virus. 

There are repeated exhortations to continue wearing the mask and maintain  distance even if one is vaccinated. Why this should be so, I can't figure out. I do get the standard explanation being trotted out  but that is not convincing.

It seems to me that whether you follow all precautions and take the vaccine, or you don't do any of those things, 
the chances of anything happening to you is about the same. Or , so marginally different, that it makes no difference.

But the cost of "taking precautions" is high. And it is  certain, a hundred percent probability of decline in immunity due to masking and distancing, due to shallow breathing, and lack of exposure.

 Life is anyway a probability game. There is no such thing called hundred percent. 

In such a situation, the most rational approach is to do nothing. No masks, no distancing, and no nothing.

Better to live every day and die once, than die  every single day.

Friday, April 16, 2021

The Common Man

The common man always suffers,
From a whole bunch of delusions,
He thinks that he really matters,
It is for him that the world runs!

The world runs in order to serve him,
And ensure his health and welfare - 
Man always loved his illusions,
Which the powerful feed and pander!

Bread, and Circuses, are needed,
Realised the Romans  of old,
Add to that now constant feeding,
Through media, and, of course, Fear!

When man is not driven by greed,
To step out and attempt great deeds,
He is by his fear constrained,
To mask himself and shackle his feet!

These two emotions run his life,
And he runs himself ragged to death,
While the ones who cause the strife,
Pander to him, for gains immense!

Monday, April 12, 2021

The Second Wave

It hits those the hardest,
Who were the most afraid;
It spares all of the rest,
Who neither knew nor cared!

In a broad swathe it mows,
Where the defences were built,
Leaving places untouched,
Where people were out and about!

Danger is best encountered,
Frontally, face to face;
Those who seek to run and hide,
Often pay a heavy  price!

Some there are who believed,
In a magic potion,
Boiled up by some druid,
For indomitable strength!

As the second wave gathers,
A crazy momentum,
Everyone tries to hide - 
There are no lessons learnt!

On Debt Investments

Was just going through the category-wise performance of mutual funds over the last five years.

Across all categories of debt funds - short, medium and long durations; or  dynamic bond  \ corporate bond funds, the five year CAGR ( Compounded Annual Growth Rate) is very close to 8 percent. 

In other words, there is no additional return for additional risk.

This is a good validation of what is obvious about the debt market in india, and, to reiterate:

Choose only the lowest risk funds. Additional risk is not worth it.

Lowest risk means any of the following:

1. Short duration, ultra short duration, and liquid funds. The credit risk is lower due the lower tenor, and there is no interest rate risk either since they are such short-maturity instruments.

2. Banking and PSU funds, not because the companies are anything great, but because mai baap sarkaar will not allow them to default. But watch out, these funds also invest in scrips like Yes Bank sometimes.

3. Government Bond funds, where the credit risk is zero (by definition, and not because we trust the sarkaar - never trust the sarkaar is a good motto to follow :-) ). But these funds typically play on duration. In a scenario where interest rates are moving up, you could be exposed to interest-rate risk. 

Always hold debt funds for more than three years. That way, you get the benefit of indexation and of the special rate of 20 percent, making the effective tax rate close to five percent or thereabouts.

Fixed Deposits yield similar returns as debt funds.

Bank FD's are: 

1. Counter intuitively , inherently riskier than debt funds, due to lack of diversification.

2. Wherever you get more rate ( say Cooperative bank) is exactly where you should not invest :-)

3. Banks are the riskiest places on earth as far as parking your money is concerned, but again mai baap sarkaar to the rescue, they will not allow the big  banks (public sector banks, icici, hdfc and a handful of others only) to collapse - the illusion of stability of that piece of Maya called economy requires banks to be kept alive even if in coma.

4. FD's are tax inefficient. Hugely so. It is only fine for someone whose income from other sources is not much. FD's are ok up to an amount of  say seventy to eighty lakhs, since the interest earned annually on that amount will fall  in the zero or lowest tax slab.

PF, PPF and Voluntary PF are always good options in debt too. UHSP's (ultra high salaried people) were taking advantage of mai baap sarkaar by investing huge amounts in VPF. Even without 80C benefit, they were earning 8 plus percent, tax free, with sarkaari guarantee. It was too good to last of course - auntie FM, who cannot tolerate to see anyone happy, plugged that loophole in the last budget. A couple of my UHSP friends went on a drinking binge after the budget (in a star hotel of course), they were so depressed. I commiserated with them in return for free booze.

To summarise: 

In the Indian market, debt is priced such that taking higher risk does not yield higher return. So, stick to safe options, when it comes to Debt Mutual Funds.

When it comes to Bank FD's , stick to public sector banks, and / or the top private sector banks. Also, for tax reasons, if you have other sources of income, avoid FD's altogether.
And, unless you are very very sure about the company / promoter group, avoid investing directly in corporate deposits. They also have the additional disadvantage of being tax inefficient, since their tax treatment is the same as that for FD's.

I was about to end  saying  Happy Investing, but there is nothing happy about investing nowadays.

So, park your money, grit your teeth, and hang on. Acche din zaroor aayenge!

Sunday, April 11, 2021

Bharatiyar Poem Nenju Porukkuthilaiye

Subramaniya Bharathi, poet laureate of Tamil, wrote this poem a hundred years back.


What he said then, remains true even today.


Given below is my attempt at translating Bharatjiyar, in verse. Tamil Pundits may please excuse any shortcomings in the translation.




POEM: Nenju Porukkuthilaiye

On the plight of my countrymen

By: Subramaniya Bharathi,


Oh! My heart cannot bear to see,

The state of these misguided people,

They are afraid of everything,

Fear is what every day kills them!


There are ghosts staying in the trees,

On top of houses, in the lakes -

These thoughts torment their waking dreams,

Feed the fears that keep them awake!


A thousand miseries they fear,

From wizards lurking everywhere,

The threat of witchcraft's always near,

The threat of Black Magic is real!


They praise all the rulers of the world,

For the gifts they receive from them,

Knowing well the politics behind,

Their self-seeking munificence!


They run at sight of a soldier,

Even a single man with a gun,

Cower in their houses in fear,

They let cowardice rule their lives!


They are always subservient,

Obsequious to every passer-by,

Stand with hands folded and backs bent,

Fear, not respect, is what makes them bow!


Oh! My heart cannot bear to see,

The state of these misguided people,

Are their divisions few in number?

In thousand ways they divide themselves!


A fiction of five-headed snake,

Invents the father to sow discord,

The son rises in righteous rage,

It's six heads, or it's off with yours!


Uncaring for the real Wisdom,

Or what the scriptures have to say,

They heed fake priests of a new God,

Attack those with whom they used to stay!


The fall prey to their false prayers,

Chanted in order to lure them –

Claim that only their God is real,

Turn upon their brethren, abuse them!


This, my heart cannot bear to see,

But I can't turn away in disgust,

They're struggling for their daily bread,

Unknowing, being ground into the dust!


Used to their endless privations,

They are starving themselves to death,

Suffering from a myriad ailments,

They refuse to support themselves!


Like the blind men who are helpless,

They choose to follow and be led,

Walk into the traps laid for them,

By those who lead with bad intent!


In this wealthy country of mine,

Rich in its arts and all its skills,

Is there no way I can help them,

Who live like homeless animals?


Monday, March 8, 2021


Greetings to all the women on this day,
Set aside to fete half of the world,
Enjoy the adulation heaped today,
But pray tell, why is today so special?

You are fully capable of living,
Without the men who only get in your way,
But you may not find that interesting,
When they see you other women don't stand and gape!

What will you do without the men in your life,
Without the attention, flirting, and the like,
You do need someone to carry your bags,
While you go shopping and empty the aisles!

What will you do without them to give chase,
Trying to impress and put on a face,
While you pretend to ignore their existence,
They are needed to brighten your days!

On this day give thought to the  poor men,
Who form the hindrances in all your lives,
And be happy you were born a woman,
For it's much worse to be on the other side!

Tuesday, March 2, 2021

Religious Fervour

Vaccine hesitancy
Science deniers

Vaccine is like a religion. Those who point out obvious flaws, are labelled "x-religion- phobe".. how different is this?

Breathless anticipation, magic cure, huge queues to get the vaccine, rationing, desirability induced by limited availability... It is like in the mythologies Kubera decides to distribute his wealth, and people are rushing before it is too late

People with comorbidities ( a lovely term that has become popular of late) can "showcase" them to get priority for the vaccine... The language used makes it oh so desirable to have comorbidities.. those who don't have any must be suffering from a severe case of FOMO

What does common sense say?

All drugs are harmful ( chemical based allopathic drugs). Vaccines, more so. 

Drugs should only be taken when the benefits exceed the cost.

Germs are everywhere and there are trillions of them. We coexist with germs. Our body has evolved and is tuned to fight them.

To keep the body fighting fit, and the immunity high, should be the goal.

Fear, panic, negativity, and taking drugs including vaccines reduce the general immunity of the body, this exposing us to various diseases out there.

Covid is like any other flu, the fatality rate has not been higher , not now, and not at any point.

There is a concentrated media campaign which makes it seem deadlier than it is. 

 The holy grail of the pharma companies is to get healthy people to take drugs. Drugs for things which can only be cured by lifestyle changes. 

And the ultimate holy grail is to include new-born babies as well.

Let us not get carried away by the hype.

Let us pause and think. If society gives us the leeway to do so. In case of any religion, including vaccination, the climate is not conducive to those who question the prevailing wisdom or go against the prevailing zeitgeist, the mood of the times.